Tuesday, May 30, 2017

The Trump disaster is upon us.
More specifically, the Trumponomics disaster is upon us. That is, the President
and his Republican goons are going to try to pass a massive tax cut to benefit
the super rich.

You don’t have to be an
economist to see why this is a disaster. And I am not even talking about the
immorality and the injustice of making
the rich even richer and the poor even poorer. No, what I am talking about is
what this is going to do to the federal budget and the national economy.

One of America’s most obstinate
problems is that its government is increasingly broke. It is broke the same way that you would be broke if you
kept increasing your debt year after year, and kept spending more and more of
your income to finance your debt, i.e.
on interest payments. Each year you would have less money left over to buy things. This is a
vicious circle. Currently, Uncle Sam spends each
year nearly half a trillion (!) dollars more than it collects in taxes.

In order to continue to provide
all the necessary services, the
government has to spend more than
it collects. To make up the shortfall, it has to borrow money by issuing treasury bonds. It has been doing
this for decades, and the accumulated
federal debt keeps growing. It now stands at $20 trillion, which is roughly
106% of the GDP.

The last time this country
enjoyed a federal surplus was during
a few of the Clinton years, when the Cold War had ended and we reaped a “peace
dividend.” After that, all hell broke
loose - 9/11, several wars, the great recession, etc. And even though the government was called upon to meet an unprecedented number of new responsibilities,
politicians such as George W. Bush enacted vast tax CUTS. Today, the ruling
party and its know-nothing President
continue to bark up that very same wrong
tree, clamoring for more tax cuts.
Obama, of course, had no choice but to also contribute to the debt. His
Keynesian response to the Great
Recession was what saved us all.

But make no mistake about it: We
ARE going broke. The government is spending a greater proportion of its income
on servicing its growing debt, and it
is therefore increasingly unable to
meets is responsibilities to the American people. This is reminiscent of what
was happening in France in the second half of the 18th century,
which led to the French Revolution. Louis XVI and Marie Antoinette paid dearly for
bankrupting the state.

The list below shows the steady
increase in the government’s interest payments over the past 66 years:

The growing cost of servicing
the debt is as wasteful as burning dollar bills - by the billions! All this
money could be spent on services, on the safety nets that are more and more
needed by our increasingly impoverished population, on science, education,
health care, infrastructure, you name it.

How much of its money does the
government waste in this manner? Just take a look at a recent (2015) federal
budget:

The total size of the budget is
about $4 trillion. Below is a list of
the major budgetary categories:

* This source understates the
amount spent on debt servicing. Like all
borrowers, the government has benefitted from the extremely low interest rates
of recent years. Sooner or later the rates will rise, and the government’s
interest payments will skyrocket.

Even so, interest payment is
already the fourth largest expense on the list, exceeding all categories except
Social Security, Medicare and military
spending.

Imagine what wonderful things
the government could fund with the hundreds of billions of dollars it wastes on
%? How much scientific research? How many college scholarships? How many roads
and bridges? How much new housing? How much on
renewable energy? How many
improvements to the national parks?
Public transportation? Support for arts
and music? Affordable universal health
care?

The downward spiral of
out-of-control borrowing can only be stopped through a combination of (1) belt
tightening and (2) major tax increase, if only temporarily. Debt financing is
already beginning to crowd out even the
most essential services and safety nets. This the meaning of the cruel
Republican efforts to cut back Medicaid,
to repeal Obamacare, to abolish defined-benefits retirement plans, to cut and
cut whatever basic services and safety nets help the downtrodden, while at the
same further reducing the taxes of the rich.

Quite the opposite is needed: A massive tax increase, hopefully a temporary
one, to eliminate the debt, to break the vicious cycle. This shouldn’t be difficult, especially if done progressively.
After all, there is an obscene concentration of wealth in this country. 40
years ago, the average CEO made about 30 times the salary of his average
employee. Now, that ratio is 300! Can a
CEO not get by on a million and a half a year? Must he make ten times that
much?

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